HBO Max Launches — With More Than 10,000 Hours of Content

WarnerMedia’s much-hyped subscription streaming video service, HBO Max, launches today (May 27) as the most-expensive over-the-top video platform ($14.99) and last to join a crowded SVOD market dominated by Netflix, Amazon Prime Video, Disney-owned Hulu and Disney+.

“Today we are proud to introduce Max — a dream that was created and nurtured by an incredible team of talented executives who dedicated the last year-and-a-half to making it a reality for consumers nationwide,” Bob Greenblatt, chairman of WarnerMedia Entertainment and Direct-to-Consumer, said in a statement.

The service, which will include a less-expensive ad-supported option, bows with more than 10,000 hours of content targeting as wide an audience (kids included) as possible — unlike traditional HBO, HBO Go or HBO Now.

Among the movies featured on the new service: all eight films in the “Harry Potter” franchise.

“There’s got to be more frequent [viewer] engagement,” John Stankey, who will soon succeed Randall Stephenson as AT&T CEO, said during Max’s media unveiling last October.

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That means HBO’s “True Detective” and “Game of Thrones” viewership has to expand to include families seeking libraries of Looney Tunes, Merrie Melodies and Hanna-Barbera content, in addition to re-runs of “Friends,” which WarnerMedia paid $425 million to itself (Warner Bros. Television) for exclusive streaming rights. A big-budget reunion special episode was put on hold due to the coronavirus pandemic shuttering production.

Backed by a $4.8 billion war chest over the next several years (relatively small compared with Netflix’s reported $17 billion spend this year alone), with plans to secure 50 million subscribers by 2025, Max is setting itself a high bar for achievement — or failure.

Max is also appealing to DC comics fans with pledges to release every “Batman” movie on the platform, in addtion to Aquaman and Wonder Woman, among others. This strategy puts Max at odds with DC Universe, the $8 monthly streaming service that features a slew of original series. Currently only “Doom Patrol” is migrating over to Max.

“The competition is actually more about content than anything else, and whatever’s on Max is not going to be available to Netflix or Disney+,” said Michael Pachter, media analyst with Wedbush Securities in Los Angeles.

Pachter contends that with the HBO brand already available to about 140 million households, it’s just a matter of time before a percentage of them migrate. Max is now available to existing HBO and HBO Now subs at no extra cost.

Pachter said the only question is how many households will keep pay-TV in a global recession due to the coronavirus pandemic.

“My guess is that conventional HBO loses a lot of subscribers (probably 5 million) over the next year or so, while Max adds two to three times that many, so net, they probably grow from 140 million to 150 million subs,” he said.

Indeed, HBO Now direct-billed subs, as well as those who are billed through Apple, Google Play, Samsung, Optimum and Verizon Fios Internet get access to Max at no extra cost, with the Now app automatically updating to the Max app on supported devices.

Current HBO subs who are direct-billed through AT&T, AT&T TV, DirecTV, AT&T U-verse TV, Cox, Hulu, Optimum, Spectrum, Suddenlink, Verizon Fios TV and select independent cable, broadband, and telco providers through the NCTC like WOW!, Atlantic Broadband, RCN and MCTV, among others, also have access to Max at no extra cost.

All that is required is downloading the Max app and then electing to access the service on supported devices or via desktop and log in using an existing provider’s username and password.

Notably missing from Max’s debut: distribution via Amazon Fire TV (and Amazon Prime Channels) and Roku — the latter with more than 40 million subs. The platforms have traditionally been key for third-party OTT launches — including HBO Now, which generated much of its 8 million sub base through Amazon and Roku.

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Amazon and Roku typically take a cut of subscription revenue, in addition to keeping control of user data, among other conditions.

“While we don’t typically comment on specific deal terms or negotiations, the fact is that in this instance while we believe that HBO Max would benefit greatly from distribution on Roku at launch, we do not currently have an agreement in place,” a spokesperson for the streaming media device manufacturer told Lightshed Partners’ Richard Greenfield earlier this month.

“These guys are going to divide up the [pay-TV] world … I expect some to count ‘only’ domestic subscribers [in the beginning], so it’s going to be noisy,” Pachter said.

NPD: April Video Game Disc Sales Up 8%

Sales of packaged-media video games for consoles and hand-held devices reportedly topped $251 million in the four-week April retail period, ended May 2, an increase of 8% from $232.4 million during the previous-year period.

The uptick in software sales was largely driven by stay-at-home gamers buying content on the Internet due to the ongoing coronavirus pandemic shuttering most retailers, including GameStop.

The two top sellers in April were Nintendo’s March release Animal Crossing: New Horizons for the Switch and Square Enix’s new release Final Fantasy VII Remake, exclusively for PlayStation 4. Another popular title, NBA 2K20 from Take-Two Entertainment has reportedly sold more than 12 million units since launching on Sept. 6, 2019 — up 33% from the previous title, NBA 2K19.

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“We believe that robust Internet spending was largely offset by store closures and curbside service across much of the country, with room left over for year-over-year retail growth in April following a breakout March performance,” Michael Pachter, media analyst with Wedbush Securities in Los Angeles, wrote in a May 22 note.

Pachter, who disclosed the NPD data, revealed that about 411,000 PS4 consoles were sold in April, exceeding his estimate of 235,000 units. Consumers bought 329,000 Xbox One units, topping the analyst’s 175,000 unit estimate.

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The popular Nintendo Switch device continues to lead the market with 808,000 units sold — double Pachter’s 400,000 unit estimate.

“The Switch’s status as a must-have item among many stay-at-home consumers drove a terrific April figure that would have been meaningfully higher if not for widespread sellouts throughout the month,” Pachter wrote. “The Switch led industry unit sales for the 17th consecutive month.”

Sony and Microsoft plan to launch new-generation PS5 and Xbox Series X consoles, respectively, this fall/winter.

Home Entertainment ‘Social Distancing’ — Boon or Double-Edged Sword?

With movie theaters shuttered and government officials calling on people not to congregate in groups larger than 10, home entertainment, including transactional VOD and packaged media, is getting a boost from consumers sequestered at home during the spread of the coronavirus pandemic.

Universal Pictures said it is releasing select theatrical titles concurrent with home entertainment following a weekend box office that saw its five releases generate a paltry $11.7 million in collective ticket sales.

Warner is putting Harley Quinn: Birds of Prey early into digital retail channels. It’s not a big gamble considering the movie has been out in theaters since Feb. 7.

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“Yes, they will see increased usage in home entertainment distribution,” said Michael Pachter, media analyst with Wedbush Securities.

While no studio is going to admit it might profit from home-confined consumers, Wall Street analysts are less concerned about optics and more motivated by trends and cost/benefit analysis, among other factors.

Pachter cautions that any uptick in transactional purchases, Redbox rentals and subscription streaming is limited in its “attractiveness” as investments. Indeed, after Universal and Warner, no other studio has announced expediting retail channels. Box office king Disney has heretofore resisted altering the theatrical window for obvious reasons.

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“There are other things going on out there that limit their attractiveness as investments,” Pachter said.

Home entertainment spending in the fourth quarter of 2019 increased 9% to $6.8 billion, from $6.3 billion spent in the final three months of 2018, according to DEG: The Digital Entertainment Group.

The analyst contends any increased revenue studios make from DVD will be “far less” than the “normal” revenue they would generate from theatrical exhibition. A noted Netflix bear, Pachter says the SVOD behemoth remains an overvalued stock, “but less so now due.” He says Disney will benefit from releasing its movies on Disney+, but will still “lose mightily” on theme parks and cruise ships — both of which are shut down.

“Redbox definitely benefits, but it’s a private company,” Pachter said. The kiosk vendor and its former corporate parent, Outerwall, were acquired by a private equity group in 2016 for $1.6 billion.

Richard Greenfield, media analyst with Lightshed Partners, said the elimination of live sports on TV makes SVOD a valuable alternative.

“To the extent consumers are increasingly working from home and refraining from out-of-home activities, without sports to watch on TV, we suspect streaming services such as Netflix will see increased subscriber additions and higher utilization per account (leading to higher ARPU plans that enable more users per household and lower churn),” Greenfield wrote in a March 12 note.

Analyst Laura Martin with Needham was one of the first Wall Street pundits to predict a home entertainment gold rush as a result of the pandemic. Martin cautions that with the pandemic now centering in Europe, international  Netflix subscriber growth will stall.

“In distressed times, people will give up their Netflix subscriptions,” Martin wrote in a note.

Greenfield disagrees.

“Netflix appears incredibly well-positioned to entertain consumers as [other] entertainment options dry up, especially if more movie theaters close globally,” he wrote.

 

Analyst: New Content Launches Will Help Netflix Meet Q3 Sub Growth Projections

With Netflix to report third-quarter (ended Sept. 30) financial results Oct. 16, all eyes will be on subscriber growth and whether the SVOD behemoth meets its 7 million global net sub additions estimate, including 800,000 in the United States.

Netlfix has projected topping 158 million subscribers world wide by the end of Q3.

Failure to meet projections on the eve of competitive service launches by Apple and Disney in November could see Wall Street continue to hammer the stock, which is down 33% since year-to-date high of $415 per share on June 20.

But perennial Netflix bear Michael Pachter with Wedbush Securities in Los Angeles contends the streaming service will meet its sub guidance due to a series of new releases in the quarter, including most notably the third-season launch of “Stranger Things” on July 4.

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“Upside to total subs guidance appears likely given the solid slate of new content that debuted in Q3, which should help dampen domestic churn,” Pachter wrote in a note. “We think guidance is easily attainable.”

That said, the analyst believes the Nov. 12 launch of Disney+ will expedite the impending loss of most Disney and Fox content, or about 25% of total viewing hours.

“We estimate that content from Comcast, Fox, Disney and Warner Bros. presently accounts for 60% to 65% of Netflix viewing hours, and we expect most of it ultimately to migrate away,” Pachter wrote.

 

E3: ‘Palpable’ Concern Regarding Packaged-Media Gaming, Pricing

As trade shows go, Electronic Entertainment Expo (E3) 2019 in Los Angeles featured the usual blizzard of new-release announcements and industry scuttlebutt about the future of gaming consoles on land (hardware) and in the cloud.

Sony’s gaming unit, Sony Interactive Entertainment, skipped the event entirely, leaving much of the floor to rival Microsoft.

And it took full advantage.

“John Wick” franchise front-man Keanu Reeves created the most non-industry buzz early when he made a surprise visit to Microsoft’s pre-show presentation for the April 16, 2020 launch of Cyberpunk 2077 (also available on PlayStation 4 and PC), which features the actor as a rebellious punk rocker in a dystopian California where pretty much anything goes.

Keanu Reeves in ‘Cyberpunk 2077’

During the presentation, an attendee yelled out, “You’re breathtaking!,” to which the actor returned the compliment, adding that everyone in attendance was “breathtaking.”

The comment soon went viral, tracking more than 2.1 million views on Twitter and elsewhere.

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But to industry old-schoolers, a future of online gaming and subscription streaming supplanting $60 discs is breathtaking for the wrong reasons.

While Microsoft disclosed that Xbox One replacement — dubbed Project Scarlett — is still slated for launch for the 2020 winter holidays and would include an optical disc drive, the company remains laser-focused on streaming.

In October, it promises to preview the xCloud platform, which it claims affords Xbox One users the ability to stream games.

With advances in technology and changing consumer habits, global tech companies such as Google, Apple and Amazon are eyeing gaming.

This has rattled some investors, who heretofore marveled at gaming’s ability to stave off digital distribution in favor of high-margin packaged media played in venerable hardware consoles.

Yet, The NPD Group said that by the end of Q3 2018, 86% of gaming content was sold digitally across console, portable, PC, and mobile.

“There is a palpable level of concern that the traditional $60 upfront price for video games [on disc] is looking a bit long-in-the-tooth given changes in how people now choose to consume music and television, with all-you-can-consume subscriptions becoming the dominant forces in those markets,” Wedbush Securities media analyst Michael Pachter wrote in  June 14 note.

The analyst agrees that secular change within gaming is happening and will expose the industry to increasingly wider audiences demanding diversity (i.e. lower costs) in distribution.

Pachter said that while subscriptions to music and TV/movie streaming services “make some sense” given the long-tail of the content and the large quantity of consumption, he contends that a shift from an a-la-carte business model to subscription is unlikely to become popular except with hardcore gamers.

“We think concerns about pricing are overdone,” he wrote. “The average gamer plays three to four games per year on console or PC and another five to six games on mobile, compared to typical consumption of over 1,000 TV shows, at least that many songs, and dozens of films each year.

“We are skeptical that a Netflix-like service will emerge with thousands of choices at a low monthly price and think investor concerns about the erosion of the current business model are unfounded.”